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2016 (3) TMI 22 - ITAT AHMEDABAD

2016 (3) TMI 22 - ITAT AHMEDABAD - TMI - Revision u/s 263 - as per CIT(A) AO has not properly computed disallowance under section 14A while finalizing the assessment- Held that:- Commissioner was in error in holding that taking the total of assets on the basis of its value in the balance sheet has rendered the assessment order erroneous and prejudicial to the interest of the revenue. The view that the assets are required to be taken on the basis of value shown in the balance sheet, and not after .....

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as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was a .....

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lined to uphold the impugned order. Accordingly, the revision order stands quashed. - Decided in favour of assessee - I.T.A. No. 1334/Ahd/15 - Dated:- 16-2-2016 - Pramod Kumar AM And S. S. Godara JM For the Appellant : S. N. Soparkar For the Respondent : Sanjay Agarwal and A. K. Pandey ORDER Per Pramod Kumar AM 1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 27th March 2015 passed by the Commissioner, under section 263 r.w.s. 143(3) of the Income Ta .....

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ions stipulated for invoking such extra-ordinary jurisdiction were not satisfied. 2. On the facts and in the circumstances of the case and in law, the learned CIT grossly erred in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue without appreciating that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of revenue. 3. The learned CIT erred in fact and in law in setting aside the assessment .....

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sessment order was not subject to revision under S. 263. 5. Without prejudice to the above, the CIT grossly erred in invoking revision proceedings, without appreciating that disallowance u/s 14A was already a subject matter of appeal and accordingly carrying out revision proceedings was not within powers of CIT as per explanation (c) to Section 263(1). 6. Without prejudice to the above, the learned CIT erred in fact and in law in calculating disallowance u/s. 14A of the Act r.w. rule 8D on the f .....

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n the net value of total assets for calculating the average value of total assets. However, as per Rule 8D average value of total assets should be taken without reducing the amount of current liabilities and provisions. 3. Briefly stated, the relevant material facts, so far as necessary for the purpose of this adjudication before us, are like this. During the course of the assessment proceedings under section 143(3), the Assessing Officer noted that the assessee has shown dividend income of S .....

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t on the same set of facts, no disallowance under section 14A r.w.r. 8D was made in the preceding assessment years as well. It was further submitted that, notwithstanding the above factual situation, the assessee has offered a disallowance of ₹ 50,000 representing 1% of salary paid to Mr Hiren Desai, Director. None of these submissions, however, impressed the Assessing Officer. He was of the view that post insertion of rule 8D, the disallowance is to be made on the basis of the formulae se .....

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es allocated as above). The aggregate of disallowance so computed thus worked out to ₹ 10,12,383. It was in this backdrop that a further disallowance of ₹ 9,62,383, in addition to ₹ 50,000 offered by the assessee, was thus made. Aggrieved by the disallowance so made, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) upheld the contention of the assessee to the effect that no part of interest expenses could be disallowed under section 14A as the assessee ha .....

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ce of amount of ₹ 10,12,383/-comprises of disallowance of interest expenditure of ₹ 3,65,850/- and other expenditure of ₹ 6,46,533/-. As regards disallowance of interest expenditure of ₹ 3,65,850/- u/s 14A, the findings of the AO in the assessment order is not very specific. As per the AO the appellant is having interest bearing borrowed funds on which interest is paid during the year. As per the AO business funds are mixed up and it cannot be accepted that funds deployed .....

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pellant had sufficient interest free fund to carry out the investment and it has not utilized interest bearing funds for making tax free investment. As per the AR as on 31/03/2010 the appellant was having share capital of ₹ 82,76,000/- and reserve and surplus of ₹ 36,56,77,963/-. As per the AR the appellant had made investments in the share of M/s. Sun Pharmaceutical Industries Ltd. in the year 1995-96 and 1997-90 on which it has earned dividend income, 5.5 As regards disallowance of .....

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the disallowance of ₹ 6,46,533/- is hereby confirmed. As regards disallowance of interest expenditure of ₹ 3,65,850/- in my opinion the AO has not established that the borrowed funds or any part of borrowed funds were utilized in making investment income of which was exempt from tax. Moreover, the share capital and reserve and surplus in the case of appellant was sufficient to cover the cost of investments. In view of this the disallowance of interest expenditure of ₹ 3,65,850 .....

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direction to make the fresh assessment in accordance with the law in this regard . In the said show cause notice, it was, inter alia, pointed out that the interest which should have been taken into account for the purpose of disallowance is not the net interest (i.e. interest received minus interest paid minus interest disallowed by the AO anyway) but gross interest ((i.e. interest received minus interest disallowed by the AO anyway), that the computation of average investment was incorrect inas .....

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which prevailed with the Assessing Officer. It was also pointed out that when the Assessing Officer has made proper inquiries and then framed the assessment order in a particular manner, it cannot be subjected to the revision proceedings just because the Commissioner has a different view of the matter. Reliance was placed on Hon ble jurisdictional High Court s judgment in the case of CIT vs Amit Corporation [(2012) 21 taxmann.com 64 (Guj)]. It was also explained that in view of the provisions o .....

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A is incorrect, there is no occasion to compute disallowance under rule 8D. In the present case, there is nothing to show the Assessing Officer s dissatisfaction with the disallowance offered by the assessee. It was also contended that even on merits, the Commissioner was in error in proposing the revision proceedings. What can be subjected to disallowance, as held by various benches of the Tribunal including in the cases of Morgan Stanley Securities Pvt Ltd Vs ACIT [(2011) 55 DTR 177 (Mum)] and .....

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ce. What should have been taken into account, and has been taken into account, is the investment relating to tax exempt income. As for the figures of assets taken in the computation not being the same as the balance sheet figure, it was explained that the balance sheet figure in the outer column is net of current liabilities, as per the requirements of Schedule VI to the Companies Act, whereas the amount taken into account in the computation of disallowance is the value of assets as per the bala .....

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net amount. As for the judicial precedents cited before him on this issue, he chose to simply brush them aside. On the question of gross assets versus net assets, however, he referred to a decision of the Tribunal in the case of Geojit Investments vs ACIT [(2015) 67 SOT 37 (Cochin)] in support of his stand. On the basis of this reasoning, and without even dealing with many of the issues raised by the assessee in his submissions, learned Commissioner concluded as follows: 6. In the light of the a .....

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5. The assessee is aggrieved by the order so passed by the learned Commissioner, and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. We have noted that as on the time of passing the impugned revision order, the matter regarding disallowance under section 14 A was pending for consideration before the CIT(A). The assessee had filed the appeal before the CIT(A) on 2 .....

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Madras High Court s judgment, in the case of CWT Vs Sampathmal Chordia [(2002) 256 ITR 440 (Mad)], which observes, inter alia, as follows: 2. The revisional jurisdiction cannot be exercised in a manner which would result in depriving the appellate authority of the power to examine the correctness of the order under appeal, when an appeal, has, in fact, been filed in respect of those matters and was pending before the appellate authority. The Explanation to s. 25(2) in cl. (c) thereof, after its .....

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ese two provisions are reproduced below: (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation c to Section 25(2)] (c) where any order referred to in this sub-section and pas .....

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and quashed. However, there are several other reasons as well which lead us to the same conclusion. We have also noted that the Assessing Officer had examined the matter regarding disallowance under section 14A in detail and then reached a certain conclusion. This aspect of the matter has been examined at length by the Assessing Officer, and, after due consideration and consistent with the accepted past history of the case, he has partly upheld the contention of the assessee on some aspects of t .....

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is Tribunal in favour of the assessee. When these decisions are pointed out to the learned Commissioner, he does not even deal with these judicial precedents. Various benches of this Tribunal, such as in the cases of Morgan Stanley (supra) and Trade Apartment (supra) have consistently taken the view that the amount of interest, for the purpose of computing the disallowance, is to be taken at the net figure. Such being the circumstances, by no stretch of logic, the Assessing Officer considering t .....

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mulae set out in rule 8D(2)(ii) refers to the average value of investments, income from which does not, or shall not, form part of the total income, as appearing in the balance sheet of the assessee…. . The investment in mutual fund satisfies this condition inasmuch as the investment is stated to be in fixed maturity plan- a fact stated by the assessee all along, including in his submission before the Commission in response to the show cause notice- at page 54 of the paperbook before us, .....

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nambiguous and it refers to the average of total assets, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year . Clearly, therefore, the assets are to be taken at the balance sheet value and there is no scope of netting these figures by subtracting current liabilities from the same. A reference to the average value of total assets as appearing in the balance sheet implies the total of assets appearing in the balance sheet; nothing more, nothing .....

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ed to hold that net current assets is to be considered while applying the formula under Rule 8D of the I.T. Rules instead of gross current assets , but then the limited facts set out in this order do not make it clear as to what is the mistake in computation which has led to the conclusion that net current assets are to be adopted rather than gross current assets and whether the net current assets are net of liabilities or net of something else. There is nothing more on facts or the reasoning pr .....

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ross assets and the formulae set out in rule 8D(2) will, therefore, have a larger denominator in the event of gross assets being adopted. Essentially, the figure of gross assets being adopted as a denominator will lead to lower amount. Yet, it appears that, in this case, the assessee himself pointed out that the figure of net assets should be adopted which would have led to a higher disallowance under rule 8D. Such a concession cannot, in any event, constitute an adjudication by the coordinate b .....

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view is that the total value of assets should be taken into account without making any adjustment for the liabilities. It is elementary, as was held by Hon ble Supreme Court in the case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83 (SC)], Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two view .....

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